Buy Now Pay Later

Going mainstream: More middle- and higher-income earners using buy-now-pay-later option

The Globe and Mail (Ontario Edition)
20 Oct 2025
MARIYA POSTELNYAK CONSUMER AFFAIRS REPORTER

Fahd Pasha could afford the new iPhone. But the interest rate on the buy-now-paylater option with money-lending service Affirm felt minimal – about $150 over two years – and allowed the new dad to balance a growing list of expenses.

Going with Bell or Rogers meant getting locked into a hefty contract. The pay-later option through Affirm felt manageable at about $89 a month for one device.

“We wanted to make sure my wife and I had new phones so we can record pretty much every element of our child’s life,” he said. “It fit into our budget. … I would then be able to use those funds to earn interest or to invest or save it elsewhere.”

While it’s often seen as a financing tool for people with limited financial means, a growing number of Canadians are using buy-now-pay-later as a strategy to manage all sorts of expenses.

They’re using the service, which allows shoppers to break up payments into instalments of four or more (sometimes fewer), to buy everything from iPhones and appliances to clothes, concert tickets, barbecue grills and Botox. And it’s transforming the spending landscape.

Data provided to The Globe and Mail by Payments Canada, a non-profit that runs payment clearing and settlement systems, show that 26 per cent of Canadians have used BNPL services so far in 2025.

Klarna, one of the largest providers of such loans, currently has 2.2 million active users in Canada – a 244-per-cent increase from 2023.

Notably, recent data show that middleincome earners were almost as likely to use the service as those making less.

Mr. Pasha, for example, said he would use BNPL in the future for larger planned expenses such as bathroom renovations.

He vowed never to use it for smaller impulse purchases or food. “Anything under $100” is a no.

Twenty-nine per cent of Canadians who used BNPL one or more times a year had a household income of less than $40,000, while 27 per cent of BNPL users made more than $80,000. However, the highest income group was more likely to use the service more than once a month.

A U.S. study from LendingTree also showed that almost 40 per cent of respondents who reported having used the financing service earned US$100,000 or more.

Despite the risks and biases that are often associated with BNPL, the product may not be inherently worse than other types of credit, said Kim Holder, managing director of the Center for Economic Education at the University of Tennessee at Chattanooga.

In fact, U.S. data from the Consumer Financial Protection Bureau show BNPL default rates remain lower than for other forms of consumer credit.

Credit products such as BNPL are a way to “shift money through time,” Ms. Holder said.

“If I know my income is going to increase over time, which generally it does, then if I need something now, like education,” she said, “I can account for that payment and pay it off.”

The risk is when that credit becomes widely accessible without any guardrails.

Businesses aren’t eager to give away free money, Ms. Holder said. “Casinos exist because casinos make money.”

The business model behind large BNPL providers, combined with a lack of regulation and a ubiquitous presence across the buying journey, from finding a perfect pair of shoes to clicking checkout, mean that the odds are often stacked against the most financially vulnerable – even as the payment tool gains widespread adoption, Ms. Holder said.

In that, BNPL may also resemble the early days of credit cards, when there was little oversight, she said.

While middle-income earners may be using BNPL almost as frequently as lower-income households, the second group may be using it in riskier ways.

The top two reasons that Canadians aged 18-34 said they used BNPL were the ability to defer payments and speedy approval, according to 2024 data from Payments Canada. Clothing, electronics and food were their top spending categories.

For middle-aged Canadians, the leading drivers were easier budgeting and a “disciplined way” to stagger payments. A majority used BNPL for household items such as appliances. Clothes came in second.

Some risks of BNPL are apparent in how providers make money.

Klarna made about US$254 million in “reminder” – a.k.a. “late” – fees in 2024, up from $198-million in 2023 and $166million in 2022, according to records it filed when it went public in September. (Klarna spokesperson Clare Nordstrom said that fewer than 3 per cent of Klarna purchases globally incur late fees and most revenue is generated through transaction fees charged to retailers.)

Shoppers are charged the lower of either $7 or 25 per cent of the instalment value, per late payment, though the total value of late fees is capped at 25 per cent of the order cost. If that amount isn’t paid for more than 91 days, a collections agency could get involved.

“The math matters,” Ms. Holder said. “Maybe people of all kinds of household income are using this, but probably the most financially vulnerable consumers are the ones who are paying a lot of these interest-bearing loans.”

Credit cards also have this risk, but there are some key differences.

For starters, while credit cards let consumers make purchases they might not otherwise afford, BNPL makes them feel confident they can afford them.

That’s because many of the options don’t charge interest over time. Others come with

minimal fees. It can become easier to stack these loans, racking up late fees on multiple fronts. Four late payments on three purchases with Klarna valued roughly at $200 each would add up to $84 in fees. For long-term financing options – such as the option to pay in six or 24 months – the interest rate for BNPL debts often goes from 0 to 35 per cent. (Though this isn’t different from traditional financing options offered through furniture companies, for example.) Whereas customers typically use credit cards only at checkout, BNPL providers draw in customers across the entire buying journey.

2022 Global Risk Institute report on the BNPL market in Canada found that large BNPL providers formed close relationships with merchants. They launched apps, browser plug-ins and entire retail ecosystems.

On Affirm, Afterpay or Klarna’s own platforms, users can search through dozens of retailers that offer payment through the fintechs – everything from Sephora to Home Depot. Shoppers browse shopping categories like “Gaming & Entertainment” or “Toys & Hobbies.”

Some of these shopping experiences and their advertising have been laser-focused on segments of the population. A Federal Reserve Bank of Boston study found that women were significantly more likely to use instalment payment services. Klarna’s advertising has often targeted this segment through partnerships with Paris Hilton and fast-fashion brand Shein.

The catch is that shoppers who use BNPL typically spend more on average. A 2021 RBC Capital Markets study estimated that sales conversions grew 20 to 30 per cent.

But late payments are also growing among consumers.

LendingTree data in May showed that 41 per cent of BNPL users said they paid back a BNPL loan late in the past year, compared with 34 per cent the year prior.

“Some creditors are now registering a lien on the purchased items – or even on other assets of the debtor – as security for the debt,” said Francisco Remolino, a licensed insolvency trustee at Remolino & Associates.

“This effectively makes them secured creditors,” he said. “In the event of default, they can repossess the goods or pursue other assets.”

Although BNPL debt is still a smaller portion of overall consumer debt compared with credit cards or lines of credit, it’s “increasingly showing up in insolvency files,” he said.

Unlike traditional credit providers, BNPL services don’t need to report to credit bureaus yet. However, in June, a major creditscoring provider known as FICO, announced that it would start factoring BNPL payment history into its U.S. credit scores.

For now, BNPL services in Canada generally rely on a soft credit check based on alternative data such as utility payments and user-reported education information, according to the report from Global Risk Institute.

This lack of oversight mirrors the early days of credit cards.

Ms. Holder recalled how sales reps for major providers sat outside the campus bookstore when she attended university years ago. “Every bag that you left [with] at the bookstore had credit card applications in it – they were pre-approved so it was really easy, and that’s why so many students got into trouble.”

Then, over time, there were a few more hoops to jump through to apply for a credit card, she said. “I think of buy now, pay later in a similar space.”